The disappearance of T-Mobile in the UK will be cheered by rivals

Vodafone is considering a bid for T-Mobile. Una Galani explains why
T-Mobile would not be missed in the UK.

The UK mobile industry wouldn't miss T-Mobile. The Deutsche Telekom operation is too small to prosper, but big enough to make trouble for everyone else. Now it's effectively on the block, with a price tag of something like £3bn. Vodafone, number two in this overcrowded market, is understood to be interested.

If Vodafone does make an offer, it would suggest a renewed focus by the mobile giant on mature markets, after several years of snapping up assets and licences in India, the Middle East and Africa. But newish chief executive Vittorio Colao has consistently argued for in-market consolidations, if and where it makes sense.

The UK is a prime example of such a market. It has five operators and a dozen offerings from supermarkets and retailers which don't have their own networks. The result is much lower ebitda margins than elsewhere in Europe. Telefonica's 02 has the highest margins in the UK at 26pc. Vodafone is at 22pc, well below the 38pc and 43pc it garners in Germany and Italy respectively - both markets where it is also number two.

An acquisition of T-Mobile UK would change the competitive dynamics substantially. Vodafone's market share would rise from 25pc to 40pc. Current leader O2 has 25pc, while France Telecom's Orange has 22pc. Laggard Hutchinson Whampoa's 3 has only 8pc.

The disappearance of T-Mobile UK could lead to less aggressive pricing. A boost in UK margins of as much as 5 percentage points is possible, according to Citigroup.

Of course, the competition authorities in London and Brussels might not like the sound of Vodafone - or indeed any of the other top three operators - rationalising the market. But a solution is clearly needed. T-Mobile UK incurred a £1.5bn writedown earlier this year and 3 UK is unprofitable.

With the economic downturn putting more pressure than ever on margins, this market might finally be ripe for a deal.